Real estate crowdfunding comes to metro area

This home on Meadow Lane in Jackson is one of seven houses in the Jackson metro area that were either in foreclosure or underwater and have been upgraded with money from crowdfunding.
(Photo:
Southern Equity/Special to The Clarion-Ledger
)

Crowdfunding has ingratiated itself as a way of raising money to fund movies, recordings, startup businesses and sundry other projects. Add real estate to the list.

The practice, in which people, often through Web portals, contribute dollar amounts large and small to help fund a project, has taken hold on metro-area real estate through a total of $300,000 raised through a partnership between Jackson’s Southern Equity Investments and RealtyShares, a San Francisco-based real estate crowdfunding site, to buy and upgrade seven houses in Jackson and Pearl.

“It’s worldwide. It’s a great source of funds for a real estate firm (like ours),” Brad Miller, who operates Southern Equity with Michael Collins, says of the crowdfunding concept. “It provides investors a good rate of return. It facilitates the ability to start a transaction, knowing you can raise the money quickly.”

Real estate investing has long been the province of deep-pocketed, accredited investors with at least six-figure incomes and/or seven- or eight-figure net worth, whereas many crowdfunding projects can be financed through individuals chipping in anywhere from $10 to $1,000 or more.

The federal Jumpstart Our Business Startups Act of 2012 aimed to make it easier to get businesses off the ground and has been credited with helping crowdfunding take root as a common funding model. It’s a good fit with real estate, too, Miller adds, because it can help turn deals around more quickly and draw in pools of investors far removed geographically from Jackson.

The seven homes involved in the RealtyShares/Southern Equity partnership drew about 40 investors from as far away as California and Texas. Southern Equity first bought and upgraded the homes, all of which were either foreclosed or underwater properties, and upgraded their features and structures. The crowdfunding investors then raised money to help Southern Equity offset those costs. The $300,000 raised represents about 70 percent of the overall costs to get the homes, all of which are now occupied, back onto the market.

The homes generally range from 900 to 1,400 square feet and feature two to three bedrooms and one to two bathrooms. They’re 30 to 40 years old.

RealtyShares typically pairs with such companies in their crowdfunding efforts, preferring to leave management and other day-to-day issues to those local firms. The site conducts checks on a company’s credit history, balance sheet and general performance history before establishing a partnership, says Nav Athwal, RealtyShares’ CEO.

He says the Jackson area presented a unique opportunity because its real estate didn’t suffer the extreme highs and lows seen in places like Nevada, California and Florida, so there is still a good supply of foreclosed or underwater homes that crowdfunding can help turn around through companies like Southern Equity buying at low prices and investors later taking advantage of high yields.

Athwal says his investors typically see an 8 or 9 percent annual rate of return. Depending on the deal, it can take anywhere from six months to five years for investors to get their money back. “It’s a real way to build wealth. There’s a lot of appetite for real estate but it’s difficult to get access to real estate,” he said of the traditional real estate business climate. Miller adds many banks still won’t lend money to rehabilitate existing properties, particularly rentals.

While crowdfunding could draw many neophytes to invest in real estate, Athwal says his ventures to this point have involved accredited, experienced investors, since successful real estate investments need the large amounts of money they can put up versus someone just surfing the Web and looking for something to crowdfund.

David Manshoory, founder of real estate crowdfunding website AssetAvenue, told the Los Angeles Times that too many inexperienced investors “get excited about acquiring part of an investment property and lose sight of the mechanics of knowing what they are buying.”

He said real estate investors, seasoned or just getting started with the crowdfunding model, will fare best if they carefully research the property in question, including its tenant quality and market conditions, and the parameters of the investment opportunity before plunging in.